The Irony Gods Are Cackling

Somewhere, the irony gods are having a real belly laugh. They are sitting back and cackling that, on the exact same day Chesapeake (CSK) CEO Aubrey McClendon agreed to depart from the second-largest natural gas producer in the country, Kinder Morgan (KMP) agreed to snap up Copano Energy (CPNO). Kinder Morgan is already the nation's largest oil-and-gas pipeline company, and Copano is its pipeline partner -- and this takeout will enable Kinder to get much bigger in the business that McClendon had personified.

What's so comical and twisted about this? Aubrey McClendon, whom I have interviewed many times over the years, built Chesapeake on the notion that rising demand in natural gas and natural gas liquids, and therefore rising prices thereof, would make the company he cofounded into the greatest independent oil-and-gas company on Earth.

He had already made the company into the second-largest producer of natural gas in the country, after Exxon Mobil (XOM).

But prices didn't rise for natural gas or for natural gas liquids, the feedstock used to make all kinds of plastics. Instead, those prices plummeted. Aubrey had bet the company on the notion that natural gas would not only become the dominant power generating fuel -- which it is now doing, overtaking coal -- but that it would also become the leading surface-vehicle fuel.

The latter prospect, which makes so much sense, simply didn't take off in time to boost McClendon's Chesapeake. McClendon is saying he retired, but other sources are saying that he was forced out -- a victim of the wildcatting ways that have always been his hallmark.

Meanwhile, at the precise moment he announced his departure, Kinder Morgan CEO Rich Kinder -- the acknowledged dean of the U.S. oil-and-gas complex -- swoops up Copano. Again, this will make Kinder Morgan even bigger than it is in the transfer of natural gas and natural gas liquids from the Eagleford shale, among others, to refineries that can make the fuel plastic.

In other words, Kinder is saying that this revolution -- the one on which Aubrey bet his company -- is now upon us. Aubrey just didn't get there in time.

I believe the removal of Aubrey, the man who has discovered more natural gas and natural gas liquids, and Rich Kinder's simultaneous decision to get much bigger in those fuels, will mark the bottom in pricing for oily natural gas.

Kinder knows that, before the plastics industry will commit to a huge industrial build to take advantage of the cheapness of the fuel, it will need that pipe from the big oily fields in this country. His timing is as exquisite as Chesapeake's is awful.

You can't blame the board for its actions with Aubrey. We know they always liked the assets, but that they chafed against the man who found them. Chesapeake was badly overextended, and while its assets are fabulous, it was definitely overstretched and had been in a retreat mode so it could meet its cash-flow obligations. McClendon's bet-the-company style rankled the new board, which is filled with conservative businesspeople who wanted to rein him in.

But, all that said, Chesapeake can survive and even thrive if Rich Kinder is right about the Copano buy. I think he will be.

We haven't seen the last of Aubrey. He will be back in action soon with another vehicle. We haven't seen the last of Chesapeake, either. It will downsize, but it will remain a key oil-and-gas producer.

But the real winner is Rich Kinder. He can take advantage of all of that drilling and bring the oil and gas to market, making a real killing for his shareholders and partners.

Kinder has gotten to the promised land of which Aubrey had always dreamed. He's the winner in all of this. Kinder Morgan Partners is the winner, and Aubrey's Chesapeake is the loser in the amazing U.S. oil renaissance.

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